Spike in New-Home Sales 'Negates' Interest-Rate Trouble?

Spike in New-Home Sales 'Negates' Interest-Rate Trouble?

Daily Real Estate News |
Thursday, December 05, 2013

Single-family new-home sales posted a sharp rise in October, up 25.4 percent from September, according to newly released Census Bureau data. That was a similar rate to last spring when the new-home market was taking off in recovery mode.

Across the country, all regions posted double-digit gains in new-home sales in October. In the Midwest, they jumped 34 percent; 28.2 percent in the South; 19.2 percent in the Northeast; and 15.2 percent in the West. As sales gained, inventory levels fell to a 4.9-month supply.

"The strong October results return us to the sales levels we saw earlier this year and negate the pause caused by the sudden jump in interest rates," says David Crowe, chief economist for the National Association of Home Builders. "We expect sales to continue to rise as pent-up demand is released and first-time home buyers creep back into the market."

However, some economists and analysts point to several headwinds that persist and could dampen sales in the coming months.

“The market is stabilizing, but maybe it hasn’t come back to the degree that today’s data would suggest,” says Mark Zandi, chief economist for Moody’s Analytics. Several recent homebuilder surveys have shown new-home sales posting much more modest increases — or even falling.

Builders have blamed a 1 percentage point rise in interest rates between May and September as one big culprit in slowing new-home sales in their markets. Also, double-digit percentage increases in the price of new homes has sidelined some buyers.

The average price for a new home was $321,700 in October, according to Census data. That puts it on par with the average price during the 2006-07 boom times.

But with a slight pullback recently in interest rate increases and a small increase in economic confidence, some buyers have come off the fence this fall.

“It’s more active now,” Brendan Wright, a real estate professional at Atlanta Fine Homes Sotheby’s International, told The Wall Street Journal. “There was so much activity in the spring and summer that the people who missed the boat then are circling back now as opposed to waiting for next spring.”